TELCOs – CIMB
2010 World Cup rights secured
Injury time goal
Maintain UNDERWEIGHT. We maintain our UNDERWEIGHT position on the sector following confirmation that SingTel and StarHub have secured the 2010 football World Cup broadcast rights. If the media is correct on the cost of the rights, we doubt that SingTel and StarHub will be able to recover their costs, especially given the short time to secure advertisers as well as the high costs of subscription, which may deter takeup. This news reinforces our negative view on the sector. We remain concerned about the rise in content costs, pressure on broadband ARPUs and escalating subsidies. Our top pick remains M1 (TRADING BUY) for its capital-management potential and benefits from a levelling playing field thanks to NGNBN.
StarHub and SingTel have announced that they have both won the rights to the 2010 football World Cup. Instead of a joint bid, FIFA has awarded both parties individual non-exclusive broadcast rights. This means that both will pay FIFA separate sums rather than a lump sum. The rights would enable them to offer all 64 matches on their own networks. Subscribers who sign up before 1 Jun will be charged S$66 (early bird discounts) while those who sign up after 1 Jun must pay S$88. Businesses such as pubs and restaurants reportedly have to pay S$2,888-4,888 to show the tournament on their premises. While no details of the winning prices have been announced, it is believed that both operators have to fork out a total of S$21m for the rights, about 50% less than FIFA’s initial demand.
Not a surprise. We were not surprised by this development as the press had already speculated on this outcome. The main sticking point had been cost, which is thought to have fallen to S$21m from the S$40m that FIFA originally demanded.
Can they break even? With only 30 days to the tournament, we believe their opportunities to exploit any advertising revenue will be limited. Instead, telcos will have to rely more on subscription fees and to a smaller extent, mobile data from news and goal highlights to cover costs. Indeed, SingTel’s chief of content and media services, Edward Ying, said, “The objective is to break even. Whether we break even depends on subscriptions.”
The S$66 charge for early birds and S$88 for normal subscriptions are nowhere near the S$127 that we think StarHub and SingTel would need to charge their subscribers, in our scenario analysis, excluding any income from advertising and business subscriptions. This assumes that a generous 60% of households would sign up, above the “less than 50% of subscribers” that StarHub had said had signed up for its sports package. (An informal poll in our Singapore office indicated that six colleagues would sign up while seven would give it a miss.)
Moreover, even those prices may deter take-up as subscribers are now charged about 4.4x higher for early birds and 3.5x for normal vs. the 2006 World Cup rights. On top of that, the charges in Singapore will be among the highest in the region as Indonesia and Thailand intend to offer all 64 matches for free. The rights cost S$28.70 in Malaysia and S$52 in Hong Kong.
Small negative for both operators. As with StarHub’s experience in 2002 and 2006, we believe the high cost of rights will prevent both operators from achieving their breakeven objective. Therefore, we are negative on the news. While it may have secured goodwill for their customers, it comes at a cost to the operators’ bottom lines.
Valuation and recommendation
Maintain UNDERWEIGHT. We remain apprehensive over the rise in content costs in the short to medium term, pressure on broadband ARPUs, and escalating subsidies. Our top pick remains M1 (Trading Buy) as it has the most capacity for capital management, the biggest upside from NGNBN and should be the main beneficiary of content-carry regulations.